Santa Monica, CA -- Consumer Watchdog has challenged a rate increase proposed by State Farm, the state’s largest homeowners insurance company, that would overcharge consumers by approximately $210 million a year were it to take effect. State Farm has made $1.5 billion in profits from its California homeowners line over the last 5 years, according to testimony in the rate challenge submitted by Consumer Watchdog on Friday.
Since 2006, State Farm has sought another $508 million in excessive homeowners insurance rate increases that were prevented under insurance reform Proposition 103. Analyses by Consumer Watchdog and the Consumer Federation of California indicate that this proposed 6.9% increase is also excessive, and State Farm should lower its current overall rates by 12-13% for nearly 1.7 million California renters and homeowners. A hearing in the challenge is set for November 16 and will also determine whether State Farm policyholders are entitled to refunds if a rate decrease is ordered.
State Farm claims the Department of Insurance must grant special exceptions to the regulations used to calculate homeowners insurance rates or the company will be unconstitutionally deprived of an adequate profit. Actuarial testimony submitted on Friday by Consumer Watchdog reveals that State Farm is entitled to no special treatment: “SFGIC [State Farm General Insurance Company] has not shown that the use of the regulations without a variance will result in deep financial hardship.”
“Only the largest homeowners insurance company in the state has the gall to claim poverty after making $1.5 billion profits in just five years. State Farm is turning the law upside-down, using rules that are meant to protect companies in financial hardship to justify hundreds of millions in excess profits,” said Consumer Watchdog Executive Director Carmen Balber. “State Farm has no constitutional right to price gouge consumers, and voters passed Proposition 103 to make sure they don’t. A half-billion dollars already saved for renters and homeowners is the proof it’s working for State Farm’s customers.”
The courts have rejected this argument from insurance companies before. A California judge recently agreed with Consumer Watchdog that it was not unconstitutional to apply the rate regulations to homeowners insurance. Read about it at: http://www.consumerwatchdog.org/newsrelease/court-rejects-industry-challenge-insurance-rate-review-rules
State Farm has a long history of attempting to charge excessive rates. In 2006, after the Department of Insurance initiated an action against the insurer to justify its rates and Consumer Watchdog intervened, State Farm agreed to decrease its overall rates by 20%, resulting in a savings of $266 million for renters and homeowners. In 2011, after Consumer Watchdog showed that State Farm’s requested overall rate was excessive, the Department ordered the company to decrease these rates by 12.6%, or by $157 million. Again, in 2013, State Farm sought a 6.9% overall rate increase, but the Department ordered the company to further reduce these rates by 1.2%, resulting in $86 million in savings to policyholders, in response to petitions from Consumer Watchdog and the Consumer Federation of California.
The sum total of State Farm’s sought-after overcharges, prevented as excessive through rate challenges, was over half a billion dollars.
“State Farm has systematically tried to overcharge consumers for years,” said Carmen Balber. “Given that State Farm’s current rates are excessive, this case is no different.”
Proposition 103 requires auto, home and business insurance companies to open their books to public scrutiny and justify rate changes before they take effect. Consumer Watchdog has used the public participation process under Proposition 103 to save auto, home and medical malpractice insurance policyholders over $3 billion since 2003.
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